Reference no: EM131978209

Linda Fernandez smiled as she reviewed the latest market study on Whirlpool’s newest product introduction—the Ideale. Whirlpool claimed that the Ideale was the world’s lowest-cost automatic washing machine.

The Ideale concept had emerged eighteen months earlier as part of Whirlpool’s global market expansion strategy and had cost the company $30 million. The good news was that the Ideale looked like it might be the “hit” product Whirlpool needed to shore up its position as one of the world’s premiere white goods companies. At least the customer comments Linda was looking at indicated that the Ideale had “home-run” potential. For example, Silvia Oliveira, Brazilian housewife, had said,

She’s my second mother. Before she came along I spent hours bent over the washing tub. Now, I can put Ideale to work and do other things, like tend my children, cook dinner and even visit my mother.

The Ideale Story

Years earlier, Whirlpool had identified the need to bring an inexpensive washing machine to market in developing countries around the world. The low-income consumer market worldwide was absolutely huge. Equally important, Whirlpool was convinced that if it could successfully sell to the younger generation—which was often 50 percent of the population in developing countries—it would have built-in consumers for its more expensive, higher-end appliances over time as its customers aged and increased their earning power. Unfortunately, Whirlpool’s initial attempts had failed to take off. These early efforts had focused on stripping down existing products to reduce their cost. But at a price point of $300 dollars, these low-cost washers were still too expensive for consumers in key markets like Brazil, China, and India.

Despite this failure, designers at Whirlpool persevered. After all, the 30 million low-income households in Brazil, one of Whirlpool’s best international markets, appeared anxious to buy a washer if only someone would make a high-quality, low-cost machine. Independent surveys showed that automatic washers were popular—the second most coveted item among low-income consumers. Only cell phones were more coveted. Besides, just 25% of households in Brazil, 8% in China, and 4.5% in India had automatic washing machines. There was plenty of room for growth. In fact, Whirlpool executive were confident that a low-cost machine like the Ideale would boost washing machine market penetration by 20% in two years.

Therefore, a concerted effort was undertaken to design a low-cost washer from scratch. To do this, Whirlpool researchers began to explore the washing habits and mind-set of poor Brazilian homemakers. Focus groups and home visits were initiated. Dozens of representative families were “adopted” by Whirlpool researchers to provide feedback throughout the development process. Designers quickly discovered several salient facts:

• Washing cloths by hand required homemakers to spend hours bent over the washing tub—a chore they disliked immensely.

• Low-income Brazilian homemakers do laundry more frequently than their upscale counterparts.

• Homemakers were willing to live with a slower spin cycle as long as the clothes still had the appearance of being “wrung automatically.”

• Brazilian housewives liked seeing the machine operate. They also had a habit of washing floors underneath furniture and appliances.

• Low-income consumers viewed washers as a status symbol and were insulted that less-expensive appliances were often unattractive.

• Brazilians prefer cheery and rounded styling—control panels that included yellow buttons and blue lettering were perceived as stylish.

• White was a favored color because homemakers associated it with cleanliness.

Contemporary research in China and India yielded similar results. However, some differences were identified. For instance, Chinese homemakers distained white because it dirties easily. Indian consumers felt similarly. Space constraints in Chinese homes meant that washers are often kept in the living room, often situated under shelves. Finally, consumers in each country preferred wash cycles to have names that were culturally unique.

The research strongly suggested that a lucrative market awaited the introduction of a well-designed automatic washer. Because the typical Brazilian worker earned only about $220 per month, it was determined that the retail price point had to be between $150 and $200—less than half the average price of $462 in the U.S.

To meet this overriding imperative, it was decided that the washing machine would have to be designed and manufactured in a low-labor cost country. Fortunately, Whirlpool’s Brazilian factories were among its most advanced. And its rapidly growing Brazilian design staff consisted of highly skilled, technically competent low-cost engineers and industrial designers. This design team could “Latinize” U.S. designs as well as conceptualize and develop entirely new products for worldwide consumers.

The breakthrough that made the Ideale possible occurred when the Brazilian design team decided that a single-drive system that washed and spun without switching gears would meet the needs of low-income consumers. By eliminating the multiple-drive system, costs could be reduced dramatically. The single-drive technology was also unique enough for Whirlpool to apply for patents in key markets worldwide. The other major design change was to build a smaller machine with only a nine-pound capacity. The focus groups confirmed that these changes were good enough for the targeted consumers.

The market research also suggested some finer design points. For instance, the Brazilian machine was designed to stand high on four legs. It also came with rounded styling and a transparent, acrylic lid. While the Brazilian version was available only in white, the Chinese version was marketed in light blue and gray, and the Indian machine in green, blue, and white. Further, in China, where millions of low-income consumers rely on bikes for transportation, the company chose a name for the heavy-duty cleaning cycle that translated as “grease removal.” In India, the setting for delicate fabric was named “sari.”

Linda’s Challenge

As Linda perused the market report, she was pleased to see that in the first 15 days, Whirlpool shipped twice the number of machines that it expected to sell in the first month. Early sales in China were equally promising. Her task was to take the early market results and quantify the five-year expected return. If the numbers looked as positively as she hoped, she would then prepare an after-action report that identified the “good, the bad, and the ugly” of the Ideale development process. The goal was to create a cycle of satisfaction that could be used to guide future winning product development efforts.

Questions

1. Assume the following:

     • the sales price to consumers is $150

     • the retailers’ markup is 50%

     • Whirlpool’s after tax profit margin is 4%

     • The hurdle rate is 20%

     • Populations are as follows: Brazil 182 million, China 1.286 billion, and India 1.049 billion.

     • Family size are as follows: Brazil 4.01, China 3.70, and India 4.91.

     • Market penetration for each of the first two years is equal and sales increase by 10% per year for years 3, 4, and 5.

What is the expected 5-year net present value?

2. Benchmark the Ideale’s development process to help Whirlpool establish a winning approach to future global development efforts.